JAKARTA (Reuters) - Rising diplomatic tension between Australia and Indonesia spread into the corporate world on Friday, after a state-owned Indonesian firm suspended talks with Australian cattle ranchers, citing trust issues between the neighbors.

PT Rajawali Nusantara Indonesia (RNI) is the first Indonesian firm to freeze business ties with Australia due to the uproar sparked by reports that Canberra had spied on President Susilo Bambang Yudhoyono and his wife.

Dozens of protesters burned Australian flags and images of Prime Minister Tony Abbott outside the heavily fortified Australian embassy in Jakarta for a second day on Friday. They demanded an apology over the alleged spying, which had prompted Yudhoyono to downgrade diplomatic ties with Canberra.

"We decided to halt talks on cattle ranches in Australia temporarily until the Australian government fulfils what theIndonesian government insists they do," RNI Chief Executive Ismed Hasan Putro told Reuters.

"This is very important to build out mutual trust, respect and equality in the future."

Putro, who declined to name the Australian companies, said RNI had already started talks with a New Zealandfirm as an alternative candidate.

In September, RNI said it had sent a team to Australia to explore the possibility of investing around 350 billion rupiah ($29.91 million) in three or four existing cattle ranches, with the aim of importing 120,000 live animals a year.

Indonesian officials said on Wednesday the country was reviewing trade ties with Australia, worth more than $11 billion last year, but that beef and cattle imports had not yet been hit.

Indonesia is a major importer of Australian agricultural products such as wheat and live cattle, while Australia isIndonesia's 10th-biggest export market.

"Indonesia must take a firm stance with Australia as a country ... but business must not be mixed with politics," State-owned Enterprises Minister Dahlan Iskan told reporters.

SHUTTING DOWN

Yudhoyono said on national television on Wednesday that he was freezing military and intelligence cooperation, including on the issue of asylum seekers, a perennial irritant in relations.

Indonesia had started the process of halting the exchange of intelligence information with Australia, Foreign Minister Marty Natalegawa said.

"It's going to take as long as it needs to take, but the decision has been made," Natalegawa told reporters. "One by one it will be shut down."

Cooperation between the Indonesian and Australian police over asylum seekers has also "automatically and temporarily stopped", said Agus Barnas, spokesman for the ministry that oversees the program.

The reports that set off the Indonesian outrage quoted documents leaked by former U.S. National Security Agency contractor Edward Snowden, suggesting Australia had tried to monitor the phones of top Indonesian officials in 2009.

The Jakarta Post on Friday reported that a delegation of lawmakers plans to fly to Russia to meet Snowden for more details of the claims. A date for their visit has yet to be set.

Australia's prime minister has not confirmed the spying or apologized, but he has expressed regret for the embarrassment the media reports caused to Yudhoyono and his family.

Further fuelling Indonesians' anger was a derogatory comment on social media by a senior adviser to Abbott'sLiberal Party, which appeared to refer to Indonesia's foreign minister.

"Apology demanded from Australia by a bloke who looks like a 1970's Pilipino (sic) porn star and has the ethics to match," read a Twitter post from Mark Textor, a strategist and pollster for the ruling party. The post has since been deleted.

Textor, who has also worked on the campaign of London mayor Boris Johnson, denied he was referring to anyone in particular but apologized for the comment.

Abbott called the comment "tacky" and mentioned the apology when asked about the government's ties to Textor in parliament on Thursday. ($1=11,702.50 rupiah)